Bus169 Kotler Chapter 11

Placement

Chapter Objectives

1. Describe the nature of marketing logistics network management.

2. Describe the nature of marketing channels, and explain why marketing intermediaries are used.

3. Explain the organisation and behaviour of marketing channels.

4. Discuss traditional and online store retailing, the marketing decisions, and the different ways of classifying stores: by amount of service provided, product lines, relative price levels and organisational approach.

5. Compare the different types of wholesalers, including full-service and limited-service merchant wholesalers, brokers and agents, and manufacturers’ sales branches.

6. Explain the wholesaler marketing decisions of target market and positioning, and marketing-mix, and describe trends in wholesaling.

Cont’d

Marketing Logistics Network Management

• Within the system of producing and distributing Goods and Services products, the following terms are often used interchangeably to mean the same thing:

– logistics – marketing logistics – integrated logistics management– supply-chain management – materials management and physical distribution

Cont’d

• Marketing Logistics Network– A system of efficiently and effectively producing and

getting goods and services to end-users of the product.

• Physical Distribution– The tasks involved in planning, implementing and

controlling the physical flow of materials and final goods from point-of-origin to point-of-use to meet buyer needs.

Cont’d

• Managing the firm’s network of key players, including suppliers; purchasing agents; and intermediaries, who provide customer fulfillment by helping to get the products to the end-users in a timely manner.

• Includes providers of input (raw materials; components; and capital equipment), and conversion operations, including marketing channel intermediaries and those involved in the physical movement of products.

Marketing Logistics Networks

• The modern marketing organisation uses its logistics strength to coordinate functions within its network to better meet the expectations of the firm’s customers.

• Information systems play a critical role in managing the marketing logistics networks.

• Major gains in logistical efficiency have resulted from increased use of IT, such as point-of-sale terminals; uniform product codes; satellite tracking of transport; electronic data interchange (EDI); electronic funds transfer (EFT), and now the Internet.

Cont’d• Logistics

– The process of planning, implementing and controlling effective flow and storage of materials, in-process inventory, finished goods and related information from point-of-origin to point-of-consumption for the purpose of conforming to customer requirements.

• Fast Moving Consumer Goods (FMCGs)– Also called shopping goods, these products are typically

purchased each week for home consumption.

• Services Marketing Logistics– Coordinating non-material activities needed to provide a

service in a cost-effective way, with the required quality.

Marketing Logistics Decisions

• When making logistics decisions, there is often the need for a trade-off between the five logistics variables that are involved when deciding on the service level the firm will offer to its customers. – Inventory carrying costs– Transportation costs– Order processing and information costs– Conversion costs (allocating quantities)– Warehousing costs

A firm seeks to deliver an optimum level of service, but

needs to control its costs to achieve a satisfactory profit.

Figure 11.4 Marketing Logistics

Marketing channels may be used to market:

A. a hospital

B. a river cruise

C. a manufactured product

D. a vocational training course

E. all of the above

The Nature and Importance of Marketing Channels

• A marketing channel is a network of inter-dependent organisations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer, or the business user.

• Advantages of using intermediaries:– Many suppliers lack the financial resources to carry out

direct marketing. For some items, particularly ‘big-ticket’ purchases, customers want personal interaction.

– Even producers who can afford to set up their own channels are often able to earn a greater financial return by investing their resources directly into the main business activity.

– Through their contacts, experience, specialisation and scale of operation, intermediaries can usually offer a producer or supplier more than it can achieve on its own.

How Marketing Channels Add Value

• Information - gathering and distributing marketing research and intelligence.

• Promotion - developing and spreading communications about the product offering.

• Contact - finding and communicating with prospective buyers of the product.

• Matching - carrying out the necessary tasks to ensure the offer meets the buyers’ needs.

Cont’d

• Negotiation - reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred.

• Physical distribution - transport/ store goods.

• Financing - acquiring and using funds to cover the costs of the channel work.

• Risk taking - taking on the risks of carrying out the channel work.

Channel Levels

• The length of a channel is indicated by the number of intermediary levels.

• A ‘Direct’ channel has no intermediary levels. Producer sells directly to consumers

• Service Sector– producers of services and experiences also

face the problem of making their output available to target users.

Channel Behaviour and Organisation

• A marketing channel consists of ‘dissimilar’ firms that have banded together for their common good.

• Each member has some dependence on the others.• Success of individual channel members depends on

overall channel success, firms should work together. • They should understand their roles, coordinate their

goals and activities, and cooperate to attain overall channel objectives.

However, individual channel members don’t always take such a broad view (they are independent firms)

Channel Behaviour

• Although channel members are dependent on one another for overall success, they often act alone in their own short-term best interests. They often disagree on what should be done. Disagreements over goals and roles can generate channel conflict.– Horizontal conflict

• is conflict between firms at the same level of the channel.

– Vertical conflict• is even more common, and refers to conflicts

between different levels of the same channel.

Channel Organisation

• Vertical Marketing Networks – (VMN) – Consists of suppliers; wholesalers; and retailers acting as

a unified network. Either one channel member owns the others, has contracts with them, or wields so much power that they all cooperate. The vertical marketing network can be dominated by the producer, wholesaler or retailer.

• Types of VMN– Corporate

– Contractual (wholesaler-sponsored voluntary chains, retailer cooperatives, franchise organisations)

– Administered

When a product manufacturer has a conflict with its wholesalers, the manufacturer is experiencing

__________ conflict.

A. horizontal channel

B. multichannel

C. direct channel

D. vertical channel

E. single channel

Conventional vs. Vertical Channel

Main Types of VMNs

Channel Organisation

• Horizontal Marketing Networks (alliance) – a channel in which two or more companies at one

level join together to pursue a new opportunity.

• Hybrid Marketing Networks (multi-channel)– occur when a single firm sets up two or more

marketing channels to reach one or more customer segments.

• Retailing

– All the activities involved in selling goods and services directly to final consumers for their personal, non-business use.

• Retailers

– Those businesses whose sales come primarily from the act of retailing (selling goods produced by other firms).

Retailing

Retailing Classification

• Retailers can be classified 4 ways:

1. Amount of Service

2. Product Line

3. Relative Prices

4. Organisational Approach

1. Amount of Service

• Different types of products need different amounts of service, and customer service preferences can vary

• Three Levels of Potential Service– Self-Service Retailer (very little service)

– Limited Service Retailer (essential service)

– Full Service Retailer (more specialised)

2. Product Line

• Retailers can be classified by the length and breadth of their product assortments. – Speciality Stores– Combination Stores– Department Stores– Supermarkets– Convenience Stores– Mass Merchants– Superstores/ Hypermarkets– Service Businesses

3. Relative Prices

• Retailers can also be classified according to their prices. Most retailers charge regular prices and offer normal quality goods and customer service.

• Some offer higher-quality goods and service at higher prices. Retailers that feature low prices are classified as discount stores or ‘off-price’ retailers. – Discount Stores

– Off-price Retailers

– Direct Factory Outlets

– Warehouse (wholesale) clubs

4. Organisational Approach

• Chain stores– independent/ corporate/ voluntary

• Retailer Cooperatives

• Franchised operation

Retailer Marketing Decisions

• Retailers search for new marketing strategies to attract and retain customers.

• It’s becoming more difficult to attract customers with unique product variety and better services, because many offers now look the same.

• Most brands are available everywhere, and differentiation in service has become more difficult to achieve.

Target Market/ Positioning Decision

• Retailers must define their target markets and then decide on how they will position themselves in those markets.

• Until they define and profile their markets, retailers cannot make consistent decisions about the product; its price; its promotion.

• Too many firms fail to clearly define their target markets and the market position.

• Retailers must decide on three main product variables:

– Product assortment– Services mix– Store atmosphere

Cont’d

Cont’d

Pricing decision

• A retailer’s price policy must fit its target market and its chosen position; product and service assortment; and competition.

• Most retailers seek either high mark-ups on lower sales volumes, or low mark-ups on higher volumes.

Cont’d

Promotion decision

• Retailers use any or all of the promotion tools - advertising; personal selling; sales promotion; public relations; and direct marketing to reach consumers.

• Many retailers have also set up websites offering consumer information and other features and often sell goods directly.

Placement decision

• Central Business District (CBD)• Shopping Centres

– Strip Shopping Centres/ Regional centres.

• Other types of store clusters include:– in commercial buildings or near major hotels.– ‘do it yourself’ retail parks.– entertainment centres.– shopping arcades.

Cont’d

The Future of Retailing

• Several trends affect retailing:

– Population: slow down in growth; ageing.– Ongoing changes in consumer demographics;

lifestyles; and shopping patterns.– Greater level of competition.– Higher costs.– Increased use of technology.

Wholesaling

• Wholesaling includes all activities involved in selling products to those buying for resale or business use.

• Wholesalers are performing one or more of the following functions: – Selling and promoting– Buying and assortment building – Bulk breaking– Warehousing– Transportation– Financing– Risk bearing– Supplying market information – Management services and advice

Types of Wholesalers

• Merchant Wholesalers– Are independently owned businesses that take title to the

merchandise they handle. They are the largest single group of wholesalers. Two broad types:

• Full Service Wholesalers– Provide a full set of services, such as carrying stock; using

their own sales team; offering credit; making deliveries; and providing management assistance.

• Limited Service Wholesalers– Cash-and-carry wholesalers; truck wholesalers; drop

shippers; producers’ cooperatives; mail order wholesalers.

• Brokers– Bring buyers and sellers together, and assist in

negotiating and completing a trade. Brokers are paid by the party that hires them. Brokers do NOT carry inventory; provide finance; or assume risk.

• Agents– Represent buyers or sellers on a more

permanent basis but do not assume risk. Types of agents:

1.Manufacturer’s Agent2.Selling Agent3.Purchasing Agent4.Commission Merchant

Cont’d

• Target Market and Positioning Decision– Wholesalers, like retailers, must clearly define

their target markets and position themselves effectively in the market.

• Marketing Mix Decisions– Must also determine what product assortment

and ancillary services they will offer, and decide on price; promotion; and placement.

Wholesaler Marketing Decisions

• Consolidation will reduce the number of firms operating within the industry.

• Those remaining will grow in size and influence.• Distributors will need to learn how to compete

effectively over wider and more diverse areas.• The increased use of technology and automated

systems will assist in managing the business.• The differentiation between wholesalers and large

retailers will become less clear.• Wholesalers will continue to increase the extent of

their services to retailers.

Trends in Wholesaling